CMS finalized changes to the Payment Error Rate Measurement (PERM) and Medicaid Eligibility Quality Control (MEQC) programs designed to improve payment oversight and state eligibility determinations in the Medicaid program. The changes—contained in an advance release of a Final rule set to publish in the Federal Register on July 5, 2017—implement provisions of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The Final rule ends a pilot phase for the two programs and resumes the eligibility measurement component of the PERM program and the MEQC program for Fiscal Year (FY) 2019.

PERM

The PERM program measures improper payments in Medicaid and the Children’s Health Insurance Program (CHIP) based on reviews of the fee-for-service (FFS), managed care, and eligibility components of Medicaid and CHIP. Due to changes in Medicaid eligibility law—including expansion under the ACA—CMS did not conduct the eligibility measurement component of the PERM program for FYs 2015 through 2018 (see CMS proposes updates to Medicaid eligibility and payment oversight, June 21, 2016). During that time, CMS conducted a pilot program known as the Medicaid and CHIP Eligibility Review Pilots to maintain oversight of state eligibility determinations. In addition to reestablishing the eligibility measurement component of the PERM program for FY 2019, the Final rule makes several updates to program requirements. Changes to the program include:

eligibility reviews for payments made by states between July and June of a given year (a change from the previous October through September review period);

federal contractor review of determinations;

sampled reviews based upon FFS and managed care payments;

inclusion of federal improper payments when the federal share is incorrect, even if the total computed amount is accurate;

the development of a national sample size; and

payment reductions in cases where a state’s eligibility improper payment rate exceeds the 3 percent threshold and the state does not demonstrate a good faith effort to meet the threshold.

MEQC

The MEQC program requires states to report to HHS the ratio of erroneous excess medical assistance payments to total expenditures for medical assistance. Under Section 1903(u) of the Social Security Act (SSA), HHS is required to withhold payments in excess of a 3 percent threshold for eligibility-related improper payments. Like the PERM program, CMS did not operate the MEQC program for FY 2015 through 2018 so that CMS could make updates to the program to reflect changes in eligibility. The Final rule aims to restructure the MEQC program to better compliment the PERM program. The changes include:

state flexibility to design MEQC programs unless states have consecutive improper payment rates over the 3 percent threshold;

requirements to conduct reviews beyond the scope of the PERM program; and